DEAL OF THE YEAR: Domestic M&A Deal

Jan 1, 2013

Telefónica Moviles Colombia / Colombia Telecomunicaciones

Merging the Telefónica Móviles Colombia wireless
unit and the fixed-line operations of Colombia
Telecomunicaciones (Coltel) seemed a clear way to face the
challenge from competitors that had already integrated their
fixed and mobile operations.

But this was no simple company reorganization.

The government – which held 48% of Coltel
– would have to be involved. That meant compensation
and negotiations over the stake in the combined entity, not to
mention the authorization process. Spain’s
Telefónica held the remaining 52%.

There were also debt obligations to divide. These included
some 3.5 trillion pesos ($1.91 billion) owed to the Patrimonio
Autónomo Receptor de Activos (Parapat), a trust
controlled by Coltel’s pension fund that owns
fixed-line operating assets which Coltel leases.

An expected reduction in net debt of about $1.7 billion as a
combined entity helped motivate both parties, although they had
differing ideas about how the combination should proceed.

Talks lasted more than a year. Telefónica came out
controlling 70% of the merged Colombia Telecomunicaciones
entity with the Colombian government holding the balance. The
government has a right to increase that stake by 3% in
2015.

The government assumed a 48% share of the debt and agreed to
extend the payment date of other outstanding debt held by
Parapat until 2028. The deal was finally approved in April.
Bank of America Merrill Lynch advised Telefónica
Móviles, and Corficolombiana advised Coltel.

The new Coltel is now the second-largest integrated operator
in the country. It has achieved synergies of scale, greater
flexibility, as well as offer bundled services. Its new
strategy is to increase mobile broadband and value added
services along with pay-TV services and fixed line broadband
access. It plans to undertake a $2.5 billion-equivalent capex
programme.

The merger had a successful epilogue in September. Coltel
sold a $750 million, 10-year bond in the international markets.
Despite the difficulty of explaining the recent tie-up and the
resulting structure, the transaction attracted $8 billion of
orders. So successful was the issue that the bonds tightened in
from price talk of a yield of 6% at the roadshow to a final
price of 5.375% and issued at par. Credit Suisse, HSBC and
JPMorgan managed the BB rated sale. LF

Post a comment

All comments are subject to editorial review.
All fields are compulsory.